Allegheny Technologies And AK Steel To Kill The GOES Goose?

AK Steel (NYSE:AKS) and Allegheny Technologies Incorporated (NYSE:ATI), the two primary producers of grain-oriented electrical steel (GOES), have created a firestorm with their recent anti-dumping petition filed against seven countries- most if not all of the main global producers of GOES. Anti-dumping cases tend to have an immediate chilling effect on the market, as many of those foreign producers halt shipments to the US in fear of ADCV (anti-dumping, countervailing duties).

The mere filing of the case has already sent October import levels tumbling.

In defense of AK Steel and Allegheny, import levels did climb by over 30% from July 1, 2011 - June 30, 2012 until the period in question of July 1, 2012 - June 30, 2013. Of course, import levels alone don't prove dumping. US GOES producers need to show that products have sold into the import market at below home market price levels.

The GOES industry has undergone a lot of pricing backlash due to a lawsuit that a transformer producer filed against Allegheny back in 2010. That led to a US price rout for GOES. This anti-dumping case will help shore up the prices of GOES in the months to come (despite November's price decline, see below).

But the headline likely missed by many throughout the investment and metal buying communities comes down to this: the distribution transformer market within the US maintains a high degree of industry concentration. Global supply-chain multi-faceted transformer and electrical equipment companies such as ABB Limited (NYSE:ABB), Eaton (NYSE:ETN), Schneider Electric (OTCPK:SBGSF), Prolec GE (NYSE:GE), and Siemens (SI), among a few others, could easily near-shore production to other NAFTA countries not impacted by this anti-dumping petition. Smaller manufacturers without a NAFTA presence will be forced to buy more expensive domestic GOES or to buy parts from NAFTA processors at a higher price, making their products uncompetitive.

This creates a real threat to the growth of the GOES market in the US.

If even one of these companies decides to move some/any/all of its production to a NAFTA country, Allegheny Technologies and AK Steel will have effectively killed a portion of their domestic customer demand for GOES.

In a follow-up post, we will cover this story in greater depth. If companies wish to weigh in, they may file submissions to IA ACCESS by 5:00pm November 13.

In the meantime, the monthly GOES MMI® registered a value of 263 in November, a decrease of 4.7 percent from 276 in October.

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